Annual update of the consumer price index

• Update of the consumer price index in 2018 based on a unanimous opinion of the Index Commission, approved by the Minister of Economy.
• The index basket has been adjusted: 11 new products have been added to the basket and 3 less current products have been removed.
• All the weights in the index basket have been updated at group level based on the most recent household budget survey (2016) in order to reflect the current pattern of consumer expenditure.

Why is the weighting scheme adjusted every year?

As in the previous years, the weighting scheme is based on the new European ECOICOP nomenclature. This European 'Classification of Individual Consumption by Purpose' (COICOP) is a classification consisting of 12 main groups.

The idea is that the weighting scheme of the consumer price index matches the pattern of expenditure of an average household as closely as possible. It is based on the household budget survey, a biennal survey that analyses the expenditure patterns of the households. In order to reflect the current pattern of expenditure of consumers, the weights, which are currently based on the household budget survey 2016, are updated to December 2017 through a so-called price update. This ensures the systematic use of the current patterns of expenditure of the households in the index calculation.

What does the new weighting scheme look like?

The chart below displays the weightings of the twelve main groups (on a thousand) in 2016, 2017 and 2018.

This first COICOP group level consisting of twelve main groups is subdivided into three lower group classifications, and the fifth level is the level of the representative items.

The annex to this press release contains the 2018 weighting scheme and the weights used in 2016 and 2017. The weighting scheme is always published down to the lowest COICOP group level.

How is the weighting scheme built in practice?

To create the 2018 weighting scheme, new representative items and groups were added to the 2017 index basket.

Since the weighting scheme is based on the household budget survey from 2016, the weights are updated to December 2017 in order to correctly measure the price evolution in 2018. After all, since a chain index is used, in which the prices of the twelve months of the current year are compared with December of the previous year, the weighting scheme needs to be adjusted annually to the same year as the reference month based on the price evolution with the year in which the values are expressed This procedure is known in professional literature as the 'price update' of weights.

In practice, the price update of weights means that the values of the weighting scheme, based on household expenses in 2016, are updated to December 2017 based on the index evolution of each group, since December 2017 is the new reference month. This is done by multiplying the weights at the most detailed level published with the price evolution measured between December 2017 and the year 2016 (that is the ratio between the inddex in December 2017 and the average index of 2016). For product groups with significant seasonal variations, the annual average of the 2016 and 2017 indices is used for the price update.

After these calculations, the results are rescaled to convert the total weight again to 1000‰.

Why update the consumer price index every year?

The consumer price index (CPI) with reference year 2013 = 100, which was introduced in January 2014, is updated every year in January. The purpose of the annual updates is to keep the index representative throughout the years and to avoid misrepresenting the measured inflation as the index ages. This can be achieved by keeping the product basket up-to-date, adjusting calculation methods, integrating new price sources and by keeping a repsentative shop sample, among others.

Will the base year or reference year also change?

The most recent index reform of January 2014 implied a switch from an index with fixed base year to a chain index. The reference year is still 2013 = 100, which will also be the case in the following years. Therefore, the annual updates do not require any adjustment of the selected reference year.

With the chain index method, the prices of the 12 months of the current year are each time compared with prices from December of the previous year. By multiplying these short-term indices, and so creating a chain, we get a long-term series with a fixed reference period.

What role do the Index Commission and the Minister of Economy play in this?

The Index Commission is a commission composed equally of academics and employees' and employers' associations. The commission is supported by statisticians of Statbel (Directorate-General Statistics – Statistics Belgium). It advises the Minister of Economy on consumer price index matters and also issues a monthly opinion on the index calculated by Statbel. The Index Commission issued a unanimous opinion on this update to the Minister of Economy on 22^nd December 2017. The Minister completely agreed with the opinion. The administration then proceeds to the calculation in accordance with the new procedures laid down.

What changes have been made in the index basket?

Adding and/or removing representative items and adjusting the weights allow the index basket to reflect the current consumption patterns. Eight new representative items (or products) have been added to the index basket. Three representative items were removed from the index basket.

On what basis are representative items added?

Adding representative items is of course not done arbitrarily. There are several reasons:

expansion based on the relative importance of the product group to which the product belongs: if there are relatively few representative items in the basket for an important weight, representative items can be added: this is for example the case for the group "Other therapeutic appliances and equipment" (a heterogeneous group), which only contained two representative items (devices for monitoring blood pressure and thermometers). Orthopaedic soles, aerosol devices and saccharometers were added to this group; addition based on consumer purchase behaviour: this is for example the case for "streaming services", which were added to the group "Television and radio licence fees, subscriptions"; some groups with a significant weight which had not been followed up to now: it was for example the case for "Maintenance charges in multi-occupied buildings".